Price to Book Value (PB) ratio is a popular stock valuation metric, easily understood and commonly-found.
However, PB has its flaws and there are blind spots in its application. I wish to address in this education piece.
Before I go on, I have a upcoming seminar titled ‘How to Analyse Financial Statements and Annual Report’. It covers key steps to analyse financial statements, and relevant numbers to note. The end goal is to enable you to do an in-depth yet practical stock fundamental analysis. Do sign up here if you want to pick up FA knowledge and start your investment journey on the right footing.
PB The Low-Down
A company owns assets to run its business. The assets comprise those sourced from loans/debt/liability, and the other part from shareholders’ fund ie equity. So intuitively, only the assets funded by shareholders represent to true worth of a company (the rest of